European Reopening – When can the EU catch up?
With the UK starting first reopening steps today, the gap within Europe becomes even more evident. While the UK is already thinking about plans for travel abroad during the summer, restrictions in the EU become tighter and the recovery plan’s slow rollout is being publicly criticized. With fiscal stimulus lagging, inflation is still forecasted to be well below the ECB’s target, leading to repeatedly dovish statement and keeping a lid on Euro rates. Following Easter, there has been a visible increase in vaccine delivery in Europe, from a daily average of 1.7mn pre-Easter to 2.5mn per day afterwards. Looking at the breakdown by supplier, it seems the major contributor to the supply increase was due to AstraZeneca, while going forward Pfizer shots will lead the supply push. Thanks to supply improvements, vaccine administration in Europe increased over the past week: within a day, Germany and Spain inoculated 0.66% and 0.90% of their population respectively, an above-trend jump.

US Taxes – Current proposals are unlikely to enter legislation.
The US Treasury released their corporate tax proposal last week, in which they suggested to raise $2trn over 10 years. This implies a 7 percentage-point increase in the effective corporate tax rate, however, this will vary subject to the industry in which the company is active in. Interestingly, also foreign profits of multinational companies shall be taxed closer to the 21% domestic rate, in an attempt to restrict international tax loopholes abroad. However, it’s clear that neither Biden’s initial stimulus proposal nor this tax proposal are what ultimately will enter legislation by approximately September, hence we think investors are keeping their US rates positioning steady until more clarity on the final result reaches the news.

US Rates – Tighter but more room for widening.
Although rates markets have retraced so far in April, we continue to believe that the US 10Y will reach 2% by year-end as continued supply-driven inflation through e.g. semiconductor shortages and supply-chain disturbances will push US inflation above 2.5% for the next years. However, with most positive macro data behind us, dollar rates may have little reason to push further up for the next 1-2 months but could stay rangebound. Nonetheless, real yields at -0.7% in the US are too negative given the economic outlook, and so rates will ultimately continue to widen, and the curve continues to steepen.

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